Though I am a fan for good compact cameras, here are my conclusions from my comparison:

1. The ISO number of the smaller sensor is not comparable, I would say that XZ-1 ISO 800 is like OM-D ISO 6400. Which makes the F-stop difference (1.8 vs 4) quite small ...

2. The XZ-1 pictures look quite nice at fist place, but if you have a direct comparison with the OM-D output with the same lighting and the same shutter speed, it gets quite obvious that the XZ-1 uses very brutal noise reduction on high ISO pictures to get "good looking" results.

In favor of the XZ1: I think that sensor size is not the issue, I read somewhere that the opening of the Lens is the limiting factor, not the size of the sensor (a 25mm F2.5 on a smaller sensor might gather as much light as a 45mm F4.5 on a larger sensor).

In favor of the OM-D I think that:

The OM-D is a newer sensor offering 1-2 Stops more signal/noise ratio

The OM-D has less noise reduction engeged by default whih gives me more details

I can put a 25mm F1.4 or 45mm 1.8 Lens on my OM-D which gives me much more light ...